Transcript provided by Kensho.

Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

Esther Whieldon: In recent weeks we've brought you episodes from an event called CERAWeek that S&P Global hosts in Houston, Texas each year. Today we're talking about the key themes and takeaways from CERAWeek. 

The Financial Times had described this weeklong conference as the Davos of energy. And POLITICO has called it the Super Bowl of the energy industry. 

Some of the week's headline speakers included CEOs of the world's biggest oil and gas companies. Think ExxonMobil, Shell, BP, Saudi Aramco. One of the week's keynote speakers was U.S. Energy Secretary Jennifer Granholm. And as we'll hear today, there was also a big contingent from the low-carbon emerging tech space.

Now we'll be covering a lot of ground today, so buckle up. We're going to hear from several guests, including a utility, an academic, a consulting firm and some hard-to-abate industries. And we'll be covering the big themes that came out of CERAWeek, which provide insight into how different industries are approaching the low-carbon energy transition.

Lindsey Hall: Much of the week was focused on the energy transition. And not surprisingly, the messaging at CERAWeek was starkly different than what we tend to hear at climate-focused events like Climate Week NYC and COP28, where the focus has been around a need to urgently address the climate crisis. 

A lot of the discussion at CERAWeek was about the pace of the energy transition. The overarching message I heard was basically, "Slow down. Hold your horses. We can't force the energy transition to happen so rapidly, because the world needs to balance environmental or climate concerns with things like energy security, energy affordability and energy reliability." 

In other words, I heard repeatedly that you can't force developing nations to slow their growth or sacrifice economic prosperity in order to lower emissions. You can't make developing countries transition away from coal without an affordable alternative. You can't cut oil and gas out of the picture if there isn't a reliable alternative that can meet demand through a long, cold winter. We also heard that energy security is a matter of national security.

And we heard again and again that the energy transition will look different in different parts of the world. I heard CEOs from many of the world's largest oil and gas companies position themselves as the voice of reality in the face of unrealistic expectations about the energy transition. I don't know about you, Esther, but I heard oil and gas execs used the word "pragmatic" a lot during the week to describe their approach to the energy transition.

Esther Whieldon: It's worth noting how the CEO of the world's largest oil and gas company, Saudi Arabian Oil Co., or Aramco, described the energy transition. He said the current transition strategy is "failing on most fronts." He called for a focus on reducing the emissions that come from hydrocarbons instead of the current focus on replacing hydrocarbons with alternatives, which he said are unaffordable for most people in the world. He called for the world to, "Abandon the fantasy of phasing out oil and gas and instead invest in them adequately, reflecting realistic demand assumptions." And in his view, peak oil and gas is unlikely for some time to come, let alone 2030.

Lindsey Hall: So this is very different messaging than we've been hearing at climate-focused events. And I think it's hard to argue with the idea that we need all of these things: affordability, access to energy, reliability, security. Yes, these are all important. But the science shows us that we don't have the luxury of time. We need to act with urgency. We need solutions that are all of the above.

So Aramco's CEO also said his industry is painted as the transition's "archenemy." And he said that demonization is not dialogue. And here I'd like to also highlight what I heard in another session at CERAWeek. John Kerry was the speaker. And he is the Former U.S. Secretary of State and, until recently, was also the first U.S. Special Presidential Envoy for Climate. And in his panel, he responded to the Aramco CEO's comment that the energy transition has failed. John Kerry said, "It's not a switch you flip on and off at the end of a COP." Then he added, "It's a process." He also talked about the importance of climate diplomacy.

Now, Esther, this isn't a phrase that we've used on the podcast before, but we have talked a lot about this question. How do you work together across silos? And how do you bring all the players to the table to address a problem like climate change that transcends national borders?

As John Kerry said at CERAWeek, COP28 in Dubai showed that the climate community can work with the oil and gas industry toward solutions. He said Dubai is as important, if not more, than Paris for laying the groundwork to reach net zero. And he said the global stocktake that resulted from COP28 created a road map for accelerating the transition. 

He also said we can still win this battle but not with the false narrative that the energy transition has failed. He said we've got to move faster and we need to find ways to mobilize more capital faster.

Esther Whieldon: Lindsey, it's refreshing to see this through your eyes. As I've been an energy reporter since the early 2000s, it's also one of many reasons I like attending CERAWeek. It serves as a good reminder that the conversations happening in sustainability forums are very different from what's going on in many parts of the energy world. And what we heard at CERAWeek really goes to show just how little true consensus there is on the pace and path forward for the energy transition.

In addition to oil and gas executives, there were many attendees from other sectors that will play a part in the low carbon transition, like utilities and mining companies as well as financial institutions like BlackRock and emerging technology companies. 

We heard a big focus on how innovation can advance the low carbon transition and on sustainability-related topics as well. I heard hydrogen, carbon capture and sequestration, or CCS, ammonia, biofuels, nuclear and AI among the long list of topics discussed. 

And the need for a diverse workforce and a just and equitable transition was also a key focus. Similarly, we heard panels about the physical impacts of climate change and on the connection between climate- and nature-related risks.  And as we mentioned, we heard oil and gas companies talking about building out their production capacity rather than shifting away from it.

And I'd say what was new for me this year at CERAWeek was how the conversation has shifted when it comes to natural gas. Specifically, natural gas used to be talked about as the bridge to a low-carbon future, with the idea there being that it would be phased out someday. 

Well, at CERAWeek this year, the tone was very different about natural gas. We heard ConocoPhillips CEO Ryan Lance say utilities are seeing a dramatic increase in electricity demand. He said this means gas is going to "be more than a bridge," and he went on to say that it will be around for a long time. Ryan suggested that, instead of phasing out gas, the sustainable path forward for this commodity will involve cutting methane emissions and ending flaring at drilling wells. By the way, flaring occurs when companies burn the gas at an oil drilling well site rather than storing and selling it. 

And perhaps what is bolstering CEOs to be so bullish about natural gas is a massive increase in customer electricity use in the U.S. To understand what is driving this trend and the implications for utilities, I talked on the sidelines at the conference with Arshad Mansoor, President and CEO of the Electric Power Research Institute. EPRI is a major nonpartisan research organization that covers the U.S. electric utility space. 

Esther Whieldon: Arshad told me that utilities knew they would see some increased demand for electricity as customers switch to electric vehicles and from gas-fired heat pumps to electricity-based heat pumps.

Arshad Mansoor: So we knew the demand would grow. What we didn't know even 2 years ago was -- I say a set of 4 things happened within 12 months that has completely changed the amount of electricity we need in this country.

So one was November 2021. That was when the infrastructure bill was passed. One was July 2022, when the CHIPS Act was passed to bring chip factories back to U.S. August 2022, that was the Inflation Reduction Act that caused a huge amount of funds to go in for battery manufacturing onshore. And then November 2022, when ChatGPT was released commercially open to public. I call it was democratized, anybody in the world doing Google search now using ChatGPT in the back end. All those 4 things have completely changed the demand equation in U.S.

We had a pretty anemic demand growth over the last decades. On the industrial side, it has been flat to declining. And for the first time, we are seeing, even primarily on the industrial side, 600 new factories that will be built in U.S. And 2023, last year, was when all the announcements of, "I need a data center. I need to build an EV factory. I need to build a battery factory," was coming up. And now when we see the reforecasts of demand, we are seeing 2x, 4x, 6x, 8x. That feels like 1985. That's when we had that type of demand growth.

So that's really what is happening that have changed, I would say, dramatically the electricity demand equation in U.S.

Esther Whieldon: And I wanted to ask about that. So in the '80s: You say it was the last time we saw that kind of demand growth. How did the industry respond in the '80s?

Arshad Mansoor: So in mid '80s, the industry responded as we will be responding now, but we should respond in a way that leverages today's technology than '80s technology. 

We built quite a few new nuclear plants in the '80s. We were building coal plants. We were building transmission lines, so it was basically a build-out of infrastructure of power generation, transmission, distribution that helped us to meet that demand growth. 

Today, we've still got to build, but we have to build it smartly. We have to build this smartly means we need demand flexibility. And demand flexibility means when the grid has a lot of demand, maybe you don't charge your car for 2 hours.

Esther Whieldon: So like different behavior by customers?

Arshad Mansoor: Different behavior by customers, by data centers. If you are a 200-megawatt large data center and you are training a neural network, well, maybe you don't train for 1 hour. We've got to build more smart grid so that this 200-megawatt new data center is not contributing to my peak. They're actually flexible. They're reducing my peak, but they're taking all the energy that I can give them.

Esther Whieldon: Okay, so if I understand right, you're saying that this can be managed by customer behavior and signals to the customers through smart grid and other things, right? It -- I can't imagine that would take care of all the demand, though.

Arshad Mansoor: No, no, no, not even. So no. You still have to build transmission lines. You still have to build distribution lines. You still have to build form-dispatchable generation, which today is really natural gas unless you do a lot of wind and solar with 8-hour batteries, so what we are seeing in the next 5 years is a lot more natural gas power plants than we thought we will see, new power plants coming in to meet this demand, but by doing load flexibility, we can reduce it by 10%.

10% is a huge number. So when you say, "Can we just do load flexibility?" No. You cannot do load flexibility and meet the type of demand growth that we're seeing, but if you can manage 10%, that's hundreds of billions of dollars you're saving. And you're saving it for customers.

Esther Whieldon: So let me be a little naive here and say, why can't we just do renewables and batteries?

Arshad Mansoor: So here is what I say why can't we do renewables and batteries. First, 8-hour battery will not do if you have just -- if you have enough renewables, then 8 hours battery doesn't do it. You need...

Esther Whieldon: And is that how much they can offer now, just 8 hours? 

Arshad Mansoor: No. Typically 2 or -- 2 to 4 hours is going in. Some are going in 4 to 6. There are long-duration energy storage. The best long-duration energy storage in this country is natural gas. And we've got 4 month of supply of natural gas in gas caverns. That's called energy storage.

So just with wind and solar, we will need 36-hour energy storage. Wind and solar will have a huge impact in this powering. Batteries will have huge impact, but if you went full dispatchable -- just look at the last 5 very cold weather -- what happened in Canada just in January, where during that cold weather, wind and solar was not there. 90% of the load was supplied by combined cycle, so that's why a diverse portfolio of resources is a must, but what is new is let's get load flexibility.

Esther Whieldon: What does this mean for utilities in the U.S. and their net zero targets? Is this going to delay them being able to reach that?

Arshad Mansoor: That's a great question. So I think what it does is it should encourage doubling down on innovation so that things like long-duration energy storage, gen-4 reactor, hydrogen, carbon capture and storage. 

We cannot wait for 10, 15, 20 years for them. It would need utilities to step up, regulators to step up to say we will be first movers, more so than what we are now. But you heard Secretary Granholm saying that we've got to keep the lights on. And then that's our #1 priority. So with that #1 priority, you have to understand the reality. The reality is you will be building a lot of solar, a lot of wind, a lot of battery but a lot of natural gas that you were not planning to build. 

Esther Whieldon: Arshad went on to say, however, that renewables are being built at a fast-enough pace that electricity supplies should continue to get cleaner over time.

Arshad Mansoor: Last year, wind and solar and battery accounted for, I think, 90% of new demand in the U.S. We see that happening. We see by 2030 in United States, we most likely will have around 600 to 700 gigawatt of wind and solar, with 100 to 150 gigawatt of 4-hour battery, so a lot of the energy will come from clean sources, but capacity still is coming from thermal dispatchable sources.

So if you have a 2030 with 700 gigawatt of wind and solar and you've got 150 gigawatt of battery, I think electricity will continue to get cleaner and cleaner and cleaner, but electricity is only 1/3 of the emission. 

Can we keep the pace of using that clean electricity and drive electrification up? Because that's not happening. That's not happening in the industry. In the transportation, it is but not at the pace. So you have to have a pace of cleaning electricity. And you have to have an equal pace of using that electricity to electrify the rest of the economy. Just doing one is not going to help us in climate change.

Esther Whieldon: So we heard Arshad say the world needs to build a lot more renewables but also a lot more natural gas plants to meet this unexpected growth in electricity demand, which I think leads nicely to another aspect of this conference that we mentioned earlier: how different companies and sectors have different paths ahead.

We've talked on this podcast about how many utilities have set net zero targets and that investors are increasingly pressing to hear how the companies plan to meet their goals. At CERAWeek, we spoke with a number of utilities about how they plan to reach net zero. We'll include a link in our show notes to one of those interviews. 

I also sat down with NRG Energy, a utility with a large generation presence in Texas. Here's our conversation.

Lynda Clemmons: My name is Lynda Clemmons, and I'm the Chief Sustainability Officer for NRG Energy. We are a power and home services provider. We have generation. We actually have 13 gigawatts of generation. We also have 8 million residential customers, so we really kind of do the gamut of things, from creating power and selling power and natural gas to customers. And then we have 18,000 employees. We operate throughout North America, so U.S. and Canada. And our headquarters are in Houston, Texas.

Esther Whieldon: Can you give us a sense of what sustainability targets NRG has set?

Lynda Clemmons: Sure. So we were pretty early in setting our sustainability goals. And we set those goals back in 2017 and we since moved them forward, but our goals now are related to our generation. We use a 2014 baseline, and we achieve 50% emissions reductions by 2025 and then we become net zero by 2050. We've since added another aspect to the -- to our goals. And that is to make our light-duty fleet of trucks, primarily, 100% electric by 2030.

Esther Whieldon: So this 50% by 2025, what are you doing to get there?

Lynda Clemmons: Sure. So we've known about the goals for a while, right, so that's -- that piece isn't a surprise. We've really changed our profile as a company, whereas when we set these goals, we were really more of an independent power producer. And we had 53 gigawatts of generation at the time. We now have 13 gigawatts of generation, so the mix has changed dramatically, while our customer count has gone from 1.7 million to 8 million.

So there's been a really big shift for us from being solely a generator -- or primarily a generator, I should say, to really more of a customer service and a home service company. We acquired Vivint and their smart home services last year. And so what we found now is that, that shift to the home from the home services side allows us to manage not just the supply from our generation fleet but also the demand side. So as we go into climate transition and we look at not just electrification but how we manage grid and supply, we can also manage the demand portion of it.

Esther Whieldon: How is your generation mix changing as part of your decarbonization goals?

Lynda Clemmons: So for us, as I mentioned, we've gone from 53 gigawatts to 13 gigawatts, all ready, which is a pretty significant move. All of our generation now is either coal or natural gas fired. 

We definitely see gas as the bridge fuel as a huge part of the energy transition. And especially in Texas, the expectation is that a lot of this future demand will be met with gas because it is what's available for baseload and it is what's available 24/7 for that demand to be met. There will certainly continue to be a lot of renewables put onto the grid, but the intermittency of those renewables; and that potential lack of reliability to feed our hunger, our insatiable need for data will be met with gas.

Esther Whieldon: So are you planning on transitioning away from your coal fleet then?

Lynda Clemmons: I think ultimately we are 100% dedicated to our goals, right, and to being net zero by 2050. The intermediate step, I would say it's a little probably more jagged than we would have thought back in 2017, mostly because of demand. And increase in demand has really kept those coal plants not just alive and functioning but economic as well. And so that's something different than I think we would have forecast 7 years ago.

So in light of trying to maintain our integral piece of maintaining the grid, all right, we understand that -- what comes next, gas plants. And we've already -- we've said publicly that we have shovel-ready 3 gas plants. And when the Texas Energy Fund becomes available and open for applications, right, we will be applying to get funds for those plants. Those 3 plants represent roughly 1.5 gigawatts and $1.6 billion of investment.

Esther Whieldon: And what is that fund?

Lynda Clemmons: The Texas Energy Fund is a low-interest-rate fund that is dedicated to effectively gas plants.

Esther Whieldon: So tell me how you plan to reach net zero then. What's sort of the general game plan?

Lynda Clemmons: So I'm going to say that's a TBD. As I mentioned, I don't believe that we would have thought that coal plants would still be economic, which is why we don't have right now intermediate goals, right, but I think, at some point, those plants absolutely age out. And they will get retired as, especially in Texas, the grid finds other reliable resources. 

And I think we examine all things. We have experience in carbon capture, but there's certainly no promises right now that we're going to do more of that. And I think we look at technology. And I think technology is really going to be the key to helping all of us manage the emissions, whether that's from our customer side or from our generation side.

Esther Whieldon: Great. Well, I think we covered just about everything I wanted to ask about. Was there any topics or maybe even themes that came up this week at CERAWeek that you found interesting and you wanted to talk about?

Lynda Clemmons: I think it was I listened to a lot of the different presentations. This is it's very multidimensional. There's no one easy way to say what the energy market is anymore; and that, the energy transition, especially in a place like Houston that has always called itself the oil and gas capital of the world and is now looking to be the energy and energy transition capital of the world and maintain that superlative. 

Iit's going to take a multifaceted effort to do everything. And that, it means that we need to include renewables. We need to include storage. We need to include natural gas. And we need to be willing to look at new technologies and try those things out. And it's pretty exciting actually, a number of the things that I heard talked about here this week. The keyword is scale, right, and being able to take those new technologies and turn them into a scaled effort that really has impact.

Esther Whieldon: So as you heard, there is a net zero goal, but the plan to reach it is "TBD." Lynda noted that the low carbon transition will be multidimensional, and that's a term that came out quite a bit at CERAWeek.

Another big topic this year, including at CERAWeek, is AI. And this time, part of the discussion was around how energy companies and utilities can use it to drive efficiencies and track and lower emissions. 

To understand this topic better, we talked with David Sandalow. He is an inaugural fellow at the Center on Global Energy Policy at Columbia University's School of International and Public Affairs. He's also the Director of Energy and Environment Concentration. Here's David.

David Sandalow: I think there's 2 broad categories of ways that AI can help. First, AI can help optimize and predict. And one theme at this conference has been that, that use of AI is not new. The energy industry has been using AI, conventional AI, for years to do things like assist with predictive maintenance of heavy equipment, even improve the operations of solar and wind farms by understanding weather patterns better. 

But the revolution in transformer models in generative AI in the past, in recent years has led to an explosion of potential applications. I think one of the most exciting applications is in materials innovation. 

When Thomas Edison invented the modern light bulb 150 years ago, he physically took dozens of different types of materials over the course of several months, ran electric charges through them to see how much light and heat would be produced. Today, we can simulate a million of those interactions in a second. We can impose chemicals' structural constraints and see what different materials will do, and that allows us to do at least 2 things. 

One of them is to down-select quicker from the available materials to see what would work better, but it also allows us to expand the universe of materials that we test, so you can test materials that don't actually exist but could exist to see what type of properties they might have in certain applications. 

I think that type of use of AI has tremendous potential in areas like battery chemistry; biofuels; super strong lightweight materials that might have applications in vehicles or in wind turbines, other places, other parts of the clean energy sector such as that.

Another interesting application of artificial intelligence is on greenhouse gas emissions monitoring. So historically, we've relied upon fossil fuel data reports and voluntary reporting by industries and countries for greenhouse gas emissions monitoring. 

We're now entering a world in which we have vast amounts of sensor data from satellites, from drones, from planes, from ground-based monitors that can help with real-time monitoring of greenhouse gases, including carbon dioxide and methane. That data cannot be processed without machine learning and artificial intelligence tools. So AI is playing a fundamental role here. And already we're seeing methane policy affected by this. 

I think the ability of countries to sign up to the ambitious goals of the Global Methane Pledge largely dependent upon the monitoring capabilities of these technologies and just utterly still dependent on our artificial intelligence tools. So I think we're entering a world in which we're going to be able to assess in real time greenhouse gas emissions coming from specific facilities. That has a lot of benefits in terms of policy and climate change mitigation.

Esther Whieldon: So what are some of the guardrails that companies should be aware of in taking on these technologies?

David Sandalow: Let me start by saying, in order to take advantage of these technologies, 2 critical ingredients are data and people. A lot of companies already have large data sets that are relevant. Other companies need to develop those data sets and be very intentional about doing that. 

Then human capacity is a critical constraint here. We need people who — not just, by the way, the software engineers who can develop these highly sophisticated models — but we need people who can apply them and people who may not be AI experts at all who just understand how AI might be used in their business. So that's hugely important.

Now AI creates risks. And when it's used in the energy climate area, it creates risks just like in other areas. First, certainly some of the newer types of AI, generative AI models are not ready for application in areas in which they might cause -- there might be mistakes. And that might have catastrophic consequences. 

Where -- I think many people are familiar with ChatGPT hallucinating. That, ChatGPT gives you a wrong answer. That's a problem. Hopefully, you can detect it. If a comparable type of program gave a wrong answer in the operation of heavy equipment in the industry or in the electric grid, that could cause a catastrophic failure. And so you need to avoid the use of AI in areas -- of that type of AI — in areas in which there could be real operational problems. So there's -- I think broadly we can think of those as one type of safety risk.

There's an entire different category of risks related to bias and bias in the data sets, particularly like, for example, rich and poor neighborhood, rich and poor countries. For example, if you use AI to figure out where the optimal location for electric vehicle chargers might be based on historic data, you might find them more located in rich neighborhoods. And so the decisions might be weighted in that direction, as opposed to poorer areas. 

It's an issue that requires constant attention in AI. And then it's certainly true in rich countries and poor countries. And I think there is a risk that artificial intelligence worsens the digital divide between rich and poor countries, and that's something we need to pay a lot of attention to as well.

Esther Whieldon: So building on what we just heard from David. At CERAWeek, we heard Accenture CEO Julie Sweet talk about the value AI can bring to energy companies' low carbon transition. Accenture is an information technology services and consulting firm. 

Notably, part of Julie's formula for successful corporate AI adoption included what she called talent rotation, basically having a plan on how AI will change individual workflows and skill sets. Well, our next guest helps many energy companies fill C-suite positions related to sustainability as well as diversity, equity and inclusion. 

I talked with Cheryl D'Cruz-Young, a senior client partner at Korn Ferry, a global organizational consulting firm. She talked about how companies are positioning themselves to have the skill sets and flexibility to accommodate emerging low-carbon technologies and to reach their decarbonization goals. Here's Cheryl.

Cheryl D'Cruz-Young: I always go back to the structure that we've worked to globally in large multinationals, in organizations is -- it was created by the majority. It was created by the majority white male. 

Fast forward, we're in a multicultural society and we have to adapt, right? We have to adapt that structure, so in Korn Ferry we talk about diversity as the mix and inclusion is making that mix work. And to do that, there's 2 aspects. And that's fundamental understanding of behavioral change and structural change. So you have to change the structure. Many organizations are working really hard to do that to enable behavioral change to stick and to evolve. Because now we have 5 generations in the workplace. It's pretty complex. It's fantastic. But you have to embrace it. You also have to be equipped.

So if I take a utility company, for example. Again the structure was formed to deliver the needs of the business. So you had a nuclear business, a coal business, a gas et cetera. Now as we move forward, they need enterprise thinking. They need individuals who can understand the depth, from an expertise, in their silo, right, in their functional area, but then they've got to be able to lead across the organization, right? We need the reliability. We need the safety, but you also have to transform the business because there are needs to drive towards net zero. So how do we do that? How do we ensure that the talent in the coal plants, as you go through a decommissioning process -- and that might be over a decade — but how do you retrain them for where the growth is?

And I've spoken to -- and it's been really fascinating. I've spoken to leaders within the nuclear business and sort of saying, well, can you actually take the talent from these other facilities? They're like, "Absolutely. And we want it." Because they're committed. They're passionate. They've got years of safety experience or leadership experience, managerial experience, ideas; and then they can be retrained and supported.

Esther Whieldon: To what extent are companies seeking candidates who can help them on the low carbon journey?

Cheryl D'Cruz-Young: We're working with traditional energy companies who are performing. They need to continue to perform. It's the multidimensional energy transition, so we need them to continue to perform. 

But at the same time, they're working towards net zero through other technological routes like methane reduction of emissions and then carbon capture usage, carbon capture storage. So all of that is new. That's brand-new technology, so brand-new roles, but it follows traits, competencies that we've worked with our clients before.

Esther Whieldon: Are you finding that there is a shortage of skilled -- like very specific-area skilled workforce for the transition?

Cheryl D'Cruz-Young: Absolutely. Look. Everyone is going after the same talent at the same time. What we're finding is individuals are coming in from sort of supply chain or environmental or communication and then put in the spotlight where they're involved with investor relations and analyst calls. 

So yes, there's a lot to get up to speed real fast. And sometimes the experience isn't there, and so we've also been helping our clients coach, provide the gaps on is it content? Is it experience? Is it communication skills? What is needed to very quickly succeed in these types of roles?

But yes, to answer your question: At the kind of CSO level, that's sort of my area. And so I definitely see that, but then as we look throughout an organization. So engineers. I know within, say, utility, electric, gas, transmission engineers — very short supply. And then there are new roles, right? There's ethics roles in technology as we're looking at the explosion in AI because we're catching up to it. So there's brand-new roles. And then obviously I mentioned hydrogen before as well. So when you have new segments, you have new roles.

Esther Whieldon: Are you hearing from your clients a concern that access to this limited pool of talent could potentially slow down the pace of change that they want to make?

Cheryl D'Cruz-Young: Yes. Look. It is critical, in terms of achieving objectives, that they have the right talent in place. And so yes, it can. It can really -- it can set organizations back when they lose talent, really prized talent. It can slow down the pace of growth, the ambitious growth that the senior leadership wants to achieve against the competitor base, so absolutely. 

And talent can choose, right? So we are in an era of declining birth rate, right, so the global population is declining. At the same time, you've got AI that will fulfill a lot of the traditional jobs, and so you're going to have a balance. 

There'll be new jobs. Those will require new skills. And you have individuals who in some areas are more adept at learning, but this is something. Agility and curiosity are critical traits to support the energy transition. And so continuous learning is a demand of everybody. 

I love it actually because it really is -- it makes work really interesting, but it is back to the enterprise leadership, the mindsets. Do you have a growth mindset? Or do you have a mindset where you can support inclusivity? You can grow your organization through multiplicity instead of being of a scarcity mindset. It's the opposite of that. So how do I ask questions? How do I encourage people back to that inclusive innovation? Or how do I get the powerful to]nclude people so that they come up with the ideas?

Esther Whieldon: What Cheryl said about how agility and curiosity are critical traits to support the energy transition really stood out to me. And I also love the idea of how we need to be continuously learning as employees, including by building new skill sets needed for the transition.

Lindsey Hall: Those skill sets are going to look different in different industries. And we heard a lot during the week about how different parts of the value chain are approaching decarbonization. 

Our last 2 guests with this episode come from hard-to-abate sectors and will give their perspective on how they're approaching the low carbon transition. First of all, let's hear from Heloisa Schmidt, corporate sustainability manager with Bechtel. Bechtel is an engineering, procurement, construction and project management company.

Heloisa Schmidt: We cover a range of different businesses. So under energy, we look at LNG,  Dow and Stewart chemicals, water, tanks and pipeline as well as our energy transition group that's looking at kind of development of new technologies. So a lot of kind of the front-end work with customers that are looking at energy transition projects. 

We also have infrastructure, covering heavy infrastructure like rail, airports et cetera, solar power, as well as wind. We have mining and metals division, so obviously related to this, the minerals that we're going to need for the future. Nuclear security environment. So our nuclear division was there. As well as manufacturing technology, so that would be semiconductors et cetera that fall under that. So quite a broad spectrum, which makes it quite challenging actually from our own footprint perspective.

Lindsey Hall: Yes. And so talk to me a little bit about what your role is within all of that wide range of activities you described.

Heloisa Schmidt: Yes. So I oversee the global strategy for the company. And although there's great focus here on carbon, we look at impact that we have in terms of society, so marrying the environment, the social, the economic impact. So all the themes that come around climate change, including resiliency, just transition. So I kind of own the whole program and then it's implemented at our different business units. So very -- our programs are very location specific because the context for each location from a geography perspective is very different as well.

Lindsey Hall: I asked Heloisa to describe how a company engaged in this kind of hard-to-abate activities is approaching its sustainability goals.

Heloisa Schmidt: So we've announced that we're going to be net zero by 2050. And we're working within the different divisions in terms of how we achieve the interim goals. And from a Bechtel perspective, our Scope 1 and 2 is largely focused on equipment operations because we self-perform a lot of our projects. 

And so our Bechtel Equipment Operations division, we supply a lot of our own fleet to projects, is working with manufacturers to test equipment such as hybrid dozers, et cetera so that we can start implementing them on our projects. So we kind of work hand in hand. Over 90% of our emissions come from mobile and stationary equipment in our projects. A lot of people talk about offices, but for us it's really important to focus on projects. 

The second piece is really kind of the assets that we deliver for our customers because we are delivering assets that contribute to energy transition. So from very early on, selection of technology, looking at options and being involved in the studies to address the operational emissions. Because we think that's very important. And we are developing a tool to really kind of be able to help our customers make those decisions.

Lindsey Hall: Okay, so when you're working toward that net zero goal, I mean, what does that look like in practice?

Heloisa Schmidt: In practice, right now what we have established is every single one of our projects developed a climate action plan. And we work with all of the different parts of our organization, so construction, procurement, estimating, to have a project-specific plan that identifies all the different interventions that, that project is going to incorporate to reduce the overall footprint and then quantify that based on the total carbon as well as costs, to aid in the decision-making process.

Lindsey Hall: Okay. And you mentioned there are challenges along the way. Can you talk to me about what those are?

Heloisa Schmidt: Yes. So I think a lot of the challenge that we see in particular, and I'll start with our own footprint, is availability of equipment and supply chain. So in certain cases, we are able to identify an opportunity to reduce footprint, but the supply chain hasn't gotten there yet. And some of it is based on the geographic location and availability of equipment. And some of it is just not having enough in the supply chain, a big lead time, to actually get the equipment.

From an asset delivery perspective, a lot of the projects are based on being able to be financed, so that's a challenge still for the industry, as well as regulatory hurdles that we see. So I think we've seen a pickup in terms of some of these energy transitions projects with the passing of the IRA, but that's very U.S. specific rather than more globally. So I think policies to incentivize those projects will really help move those forward.

Esther Whieldon: We just heard Heloisa talk about the IRA. And that came up in my next interview too. As you'll hear, our next guest describes the Inflation Reduction Act as a game changer.

Takajiro Ishikawa: My name is Tak Ishikawa. I'm an executive vice president of Mitsubishi Heavy Industries Tokyo and also concurrently President and CEO of Mitsubishi Heavy Industries America. My role is to provide headquarter functions for all of the MHI Group companies here in North America. 

But in conjunction, I am the North American lead for our energy transition efforts. We just started a new business group called the Green Transformation Solution business group. And I'm the counterpart to my colleagues in Japan, here in North America. So I will be spearheading and working together with a lot of our businesses here and our subsidiaries here to help provide solutions to clients who wish to lower their carbon emissions. We hope to provide a technical solution to those hard-to-abate industries.

Esther Whieldon: Great. Well, thank you. And for our listeners who may not be familiar with Mitsubishi Heavy Industries itself, what should they know about it?

Takajiro Ishikawa: Well Mitsubishi Heavy Industries was founded right at the cusp of Japan going into the industrial revolution. Japan was moving from a feudal lord system to modern society. 

So the then Japanese government caused Mitsubishi Heavy to be the industrial revolution of Japan. So our firm started by introducing new technologies from abroad, namely in internal combustion engine technology, which meant using coal as a fuel to power those steam turbines that would move ships or factories or trains, anything that used fossil fuel and that had an internal combustion engine. Those were the things that we would be manufacturing for industrialization of Japan. So that's our root foundings.

So hence then, we've evolved into many, many different segments. We have roughly 450 product lines spanning all of a society's needs, from nuclear power plants, gas turbines, frigates, submarines, rocket launchers, satellite launchers, turbochargers, diesel engines. We play every segment of the industrial category.

Esther Whieldon: Well, I guess you're the perfect person to talk to about challenges decarbonizing the industrial sector then. What are some of the biggest challenges there currently?

Takajiro Ishikawa: The usage of fossil fuels just is really large across all of our society. And especially in the hard-to-abate industries like steel or cement or chemicals, these are the harder segments to lower carbon emissions.

Esther Whieldon: Why can't fossil fuels be replaced with something like wind or solar? What's the technological challenge that makes that difficult?

Takajiro Ishikawa: For certain industries, you need a lot of high-intensity heat. You can do some of it using electric coils. But for instance, a very high-temperature heat, very difficult and inefficient by using renewables. So those are some of the issues that we need to address. And also, to make steel, you need a reductant to remove the Fe and FeCO3, which is iron ore, you need to remove the oxygen with a carbon reductant. That will react, so that's why steel is very hard to abate.

Esther Whieldon: Thank you. So you mentioned that your company just launched this big green transformation solution business group. What are some of the technologies or strategies that you're focused on to start with?

Takajiro Ishikawa: I'll start off with the ones that we're already doing to provide solutions to industry using current technology, which is to provide a solution using hydrogen as a fuel source for gas turbines, or using ammonia as a fuel source for gas turbines, or carbon capture technology that can be attached to a industrial plant to take the CO2 fumes that come off of a tail pipe and then capturing the CO2 and then using the CO2 to produce another product or sequestration for the captured CO2. Those are some of the things that we're doing right now. 

But on top of that, we're also doing cutting-edge research and development to better the technology, including electrolyzer technology, both in-house R&D and also teaming up with creative and cutting-edge start-ups here in North America.

Esther Whieldon: And I think that leads well to a discussion of how is the decarbonization picture for the manufacturing industry different than, in North America, different than perhaps for other regions? What specifically needs to happen in North America to facilitate the transition for that industry?

Takajiro Ishikawa: Esther, I can really talk at length on that, but just to keep it simple: America has so many options, right? It has vast amounts of land where it can host acres of acres of solar panels or wind turbines onshore. 

It also has the geology to do geothermal. It also has the geology to sequester roughly 400 years worth of CO2 emissions that the American industry or society emits every year into the ground.

Further, there's also technology where you can convert natural gas. And combining that with a carbon capture facility, you can create hydrogen, but in locations like Japan, where our head office is domiciled, we have almost none of that or the features that America has. Further, every ounce of fossil fuel is imported from overseas into the Japanese market. Finding a replacement for that is really difficult.

Now what needs to happen, I think, was your core question, for the adoption of the decarbonization solutions that are available here in America is -- it really is dependent on the demand side. 

The IRA is a game-changer policy that the American government put together to enhance the supply side of solutions, whether it be on CO2 capture or on hydrogen. However, industry, on the other hand, also needs to use the hydrogen or adopt CO2. But the consumer market, which at the end of the day has to pay for the extra cost of the decarbonized fuel or the decarbonized solution. That demand side has yet to be built up. Those are the challenges that I see in order for the CO2 capture side of the business or the hydrogen production side of the business to really take off.

Esther Whieldon: Can you talk about the role that partnerships play in leveraging technologies or solving some of the challenges? And some examples of how your company is leveraging those.

Takajiro Ishikawa: Sure. For example -- I'll give you a few examples. To really jump-start the CO2 capture, we are working with ExxonMobil, where we provide the above-surface technology in carbon capture. And ExxonMobil provides their expertise in transporting the captured CO2 and also to sequester the captured CO2 into the subsurface. So this is a classic example of somebody having one technology, with the other having huge expertise in another technology, where we combine forces to provide a solution for industry here in America.

Another example is we invited Chevron to be part of the ACES project out in Delta, Utah, where we will be producing hydrogen. We will store the hydrogen in salt caverns and also draw on the produced hydrogen to use that as a fuel source for gas turbines that will be replacing an existing coal-fired power plant and providing cleaner power to the people of L.A. County. 

The reason why it also made a lot of sense for us to have Chevron as our partner is, again, they bring a lot of expertise in executing big projects, safety, but also they also have a lot of experience in the subsurface. And these salt caverns that we're building right now. Each one of them is the size of the Empire State Building. So we needed somebody who can really provide expertise in helping us guide the project. So these are some of the partnerships that we have with the 2 of the largest oil companies -- or energy companies in America. 

But further, when Japanese industry needs to source new energy, for example, from America, it's very difficult to fathom that the Japanese companies alone are going to come into Texas or Louisiana. Then we will all forge partnerships with local players to create projects and produce these new synthetic fuels that will eventually be shipped to Japan. So these are all partnerships that are being forged. 

But just on our own, when we think about the technologies that will be needed from now to maybe 2050 and beyond, it's so hard to predict what technologies will prevail or who will prevail. So in addition to our in-house R&D, Esther, we've decided to work with the America ecosystem, which is really America's ability to attract talent from all over the world but also to match that talent with capital to encourage entrepreneurship and breed new start-ups.

So there are a lot of climate change technologies being developed by these entrepreneurs, so we have invested in 12 companies here in America. And we're still looking for more where we would work with them to identify who are really the winners that we can take to the next level. The entrepreneurs are very good at doing 0 to 1. Companies like us and the industrial companies are good at doing 1 to 100. So we're trying to create this dream combination of partnerships.

Esther Whieldon: And Lindsey, I'd like to end this episode with one final clip from Tak because I think it ties back to that theme we've heard throughout today's conversations, that of how the transition will take time and will require some patience on everyone's part. Here's Tak.

Takajiro Ishikawa: We are committed to find solutions and provide technology to societies' needs. But we also need to remember and remind ourselves, energy transition is a long-haul journey. I think everybody needs patience. There aren't any instant wins. So we are really in this for the long haul. And we want to really move the world forward by deploying our technology and solutions.

Esther Whieldon: So as we heard today, there is not global consensus on what the energy transition will look like, but it is clear that the energy transition will need to bring all industries to the table.

Lindsey Hall: And on this podcast, we'll continue talking to stakeholders from across that value chain to understand how they're approaching the low-carbon energy transition. This is sure to drive discussions at big global events going forward like COP29, the UN's climate change conference, later this year.

Esther Whieldon: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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